Investor's Eye: Update - Raymond (Annual report review)

 

Investor's Eye [June 20, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE     Raymond Recommendation: Buy Price target: Rs430 Current market price: Rs361   Annual report review   Key points  FY2014--cost rationalisation yielded results; efficiency improvement the key: In FY2014 Raymond's top line grew at 12% YoY to Rs4,558 crore led by a growth in the denim & shirting segment (up 30.8% YoY) and the garmenting segment (up 33.4% YoY). The textile business grew at a soft pace of 7.5% YoY, as the demand remained muted. During the year the entire focus was on cost rationalisation and supply chain management which started yielding results in the form of margin expansion. For the year the operating profit grew by 31.8% while the margin expanded by 164BPS YoY from 9.1% in FY2013 to 10.8% in FY2014.  Return ratios improved: Raymond's strong operating performance, with a lower incremental investment, boosted the return ratios. The RoCE improved from 8.2% in FY2013 to 11% in FY2014 while the RoE improved from 3% in FY2013 to 9.2% in FY2014.  FY2014 was aimed at cost efficiency; FY2015 to witness investments for growth: The management's effort in FY2014 was towards gaining cost efficiency and margin improvement via supply chain consolidation and inventory management, which was partly achieved in the year. Going forward, the management aims to accelerate its investments in brand building and retailing to drive the revenue growth. The demand for apparels is also expected to improve from Q2FY2015 and hence the management expects the revenue growth to be strong in FY2015. Strong brand equity and improved environment coupled with embedded asset value keep us positive; we maintain Buy with revised price target of Rs430: Raymond's business being a levered play on consumption is likely to witness an improvement with a revival in the demand environment. This expectation of an improved macro environment coupled with the embedded asset value in Raymond (Raymond holds over 100 acre of land in the prime location of Thane which is currently valued at around Rs1,200 crore) keeps us positive on the stock. Hence, we maintain our Buy rating on the stock with a revised price target of Rs430 (valued at SOTP; with 5.7x EV/EBITDA to the core business + 50% value for the land parcel).    Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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